Critics Challenge Ouc's Authority On Bonds

More than a dozen customers challenged the Orlando Utilities Commission's authority to issue $950 million in bonds and turned a routine court proceeding Thursday into a public hearing.

OUC went to Orange Circuit Court to have certified its authority to sell revenue bonds, a routine step most cities take to boost investor confidence in their revenue notes.

Courts usually rule in bond validation cases on the same day they are heard. But after nearly three hours of sometimes complicated testimony, Judge W. Rogers Turner said he would consider the information before reaching a decision.

Members of Power Now, a citizens group opposed to construction of OUC's coal-fired power plant, argued Thursday that the city-owned utility lacked specific authority in its state charter to issue bonds. Several members said they were concerned that the bond issue would increase electric rates.

OUC General Manager Harry Luff testified that the bond sale would enable OUC to pay off about $800 million in older loans. More than half of the borrowed money is for the $506 million power plant under construction in southeast Orange County.

John Miller, an investment banker with Merrill Lynch, Pierce, Fenner & Smith of New York said the utility could save $11.9 million to $22.3 million by paying off the loans early, depending on the interest rate. OUC officials earlier had predicted savings of about $56 million.

Orlando attorney Irby Pugh, who represented Power Now at the hearing, said that the predicted savings was too small to justify issuing the bonds.

Under questioning by Pugh, Luff acknowledged that the savings ''probably would not have an effect on customer bills.'' But Luff said it would cut utility expenses and reduce the need for additional revenue later. For OUC customers, that could translate into lower rate increases.

Orlando civic activist Shirley Hall, who Turner let question witnesses, argued that OUC could only issue bonds through the city.

''As I read the law, OUC and Orlando have joint authority to issue bonds'' for utility operations, Hall said. ''The only hold people have over OUC is that it can't go into long-term debt'' without approval from the city.

She said OUC's 60-year-old state charter otherwise gives it complete control over electric and water services.

Phillip Trees, an OUC consulting attorney, argued that the utility's charter also gives it authority to issue bonds to maintain and operate utility services.

''There's been over a dozen OUC bond issues validated,'' Trees said. ''Clearly, other circuit courts already have decided that OUC has the authority.''

After being pressed by Assistant State Attorney Keith Johnstone to cite the authority, Trees conceded that OUC's charter did not contain ''specific language'' giving it the right to issue bonds. Still, Trees said the charter implies the authority because it says OUC can do whatever necessary to operate utility services.

Johnstone, appointed by the state to represent the public, said he would not object to the bond sale if the interest rate did not exceed 8.5 percent annually.

Trees and Luff contended it would be difficult to sell the bonds under such constraints. Trees added that it is impossible to say at what interest rates the bonds could be sold and save OUC money.